MasterCard or Visa For Foreign Purchases - Which is Cheaper for Canadians?

MasterCard or Visa For Foreign Purchases - Which is Cheaper for Canadians?

Last updated on March 13, 2018 Views: 3139 Comments: 14

With the weakening of the Canadian dollar, and travel coming around the corner, Canadians are looking for the cheapest way to travel and buy goods from the United States. To help out, we’ve done a study to determine whether Visa or MasterCard provides better foreign currency exchange rates for Canadians when using their credit card south of the border.

We also determined the best Canadian credit card for foreign transactions. Visa and MasterCard rely on different processes to determine their foreign exchange rate. Neither network makes its foreign exchange methodology public. To establish which of the two networks charge less, and how they compare to foreign exchange spot rates, we compared the historical exchange rates of Visa, MasterCard, Bloomberg and the Bank of Canada once a week for the past 52 weeks.

Visa & MasterCard Exchange Rates Compared

Here’s what we found:

  1. MasterCard charges a lower exchange rate than Visa 70% of the time
  2. MasterCard’s average exchange rate was 38 basis points (.38%) less than Visa’s over the course of the 52 data points.

Visa Mastercard Exchange Rate comparison

As the chart clearly depicts, MasterCard charges a lower exchange rate than Visa a vast majority of the time. Moreover, it wins by a greater margin, more often than Visa. As a result, if you were to have used both cards on each of the 52 days measured, you would have saved .38% using your MasterCard instead of your Visa.

In real world terms, if you had spent $5,000 in the United States, you would have saved, on average, $19 using your MasterCard instead of your Visa – not a huge nominal difference. Given that the difference between Visa and MasterCard exchange rates were only .38%, we believe cardholders should also pay significant attention to the difference in the value of each cards’ rewards program, since they can typically vary between 1% to 4% in value.

Visa & MasterCard Exchange Rates Compared To Currency Spot Rates

Here’s what we found:

  1. On average, MasterCard charged 58 basis points (.58%) more than the Bloomberg Spot rate and 49 basis points (.49%) more than the Bank of Canada mid-day exchange rate.
  2. On average, Visa charged charged 98 basis points (.98%) more than the Bloomberg Spot rate and 87 basis points (.87%) more than the Bank of Canada mid-day exchange rate.

MasterCard & Visa Exchange Rates Compared to Bloomberg Spot Rate

MC-V To BoC Spot

From the charts above, it’s clear that both Visa and MasterCard charge more than the spot rate. That said, we still do not know what methodology either network uses to determine their exchange rates. There does not seem to be a consistent margin or discernable pattern, which is slightly disconcerting when pricing and fee transparency, ought to be the goal. MasterCard should be given credit for charging about 40% less than Visa. As they move billions of dollars in foreign exchange, it’s not an insignificant difference. Oddly, Visa does appear to charge below the spot rate on several occasions. We could not figure out how or why. Regardless, Visa more than made up for it’s generosity by charging more than double MasterCard’s rate in excess of 25% of the time.

Despite the fact that both Visa and MasterCard charge more than the spot rate, they still charge a lot less than retail banks do. While MasterCard charges around 55 basis points more than the spot rate and Visa charges around 95 basis points more than the spot rate, if you exchange your Canadian dollars at the Bank, you’ll typically get charged upwards of 300 basis points. The lesson remains that one of the most cost effective ways to exchange money is through no foreign transaction fee credit cards. With exchange rate fees between 55 and 95 basis points, they are more competitive than most retail bank rates and currency exchange specialists.

However, if you use a credit card with a foreign transaction fee, which in Canada is usually around 2.5%, your total FX cost will now be between 3% and 3.5%, which become comparable to rates you can get exchanging money in your bank branch.

Best Credit Card For Foreign Transactions

We’ve changed our recommendation on which credit card we’d recommend when abroad or making a US Dollar purchase. We used to be indifferent as to which Canadian credit card was selected, as long as it didn’t come with a 2.5% foreign transaction fee. No longer. We now recommend people use the no-fee Rogers Platinum Mastercard for US Dollar transactions.

Following the demise of Chase Canada’s credit cards, there are now very few credit cards in Canada that subsidize or waive foreign transaction fees. The Rogers Mastercard offers 3% cash back rewards on all foreign purchases (Rogers cash back rewards can be redeemed as a statement credit), but then charges the 2.5% foreign transaction fee, for a net cash back rewards rate of 0.5%.

Article comments

Piyush says:

Can i know the Exchange rate fee of Tripadvisor, visa, mastercard and axis international card ?

Michael says:

Hi Piyush! It’s important to remember that TripAdvisor is a business based in the United States, so unless you are given the option on checkout to pay with $CAD, using other currencies to book travel arrangements (even ones in Canada) with a Canadian card will add a foreign transaction fee of around 2.5 to 3.0%. This is common throughout all US business and can be avoided by using a card with no foreign transaction fees like the Home Trust Preferred card. You can learn more about it by checking out our complete Home Trust Preferred Card review, or you can apply directly via this link. Alternatively, the Rogers Mastercard will incur the 2.5% foreign transaction fee, but balances it out by rewarding the cardholder with 4.0% cash back for every foreign currency transaction. You can learn more about that card by reading our Rogers Mastercard Review, or you can apply for the card directly via this link.

Mike says:

Rogers now also offers the Fido Mastercard, which has the exact same deal on foreign purchases, but unlike the Platinum card has no annual fee.

Mike G. says:

BS – just went to their site and what you are purporting is not the case.

François says:

great work. Curious, why is the recommendation ” We now recommend people use the no-fee Rogers Platinum MasterCard for US Dollar transactions.” What are they doing differently for other currencies that would make you not recommend Rogers?

GreedyRates says:

Hi François,

Thanks for the kind words! Our analysis only compared the foreign exchange rates of MasterCard versus Visa with respect to the Canadian dollar versus the U.S. Dollar. We would have to do a separate analysis to form a conclusion as to which network provides a better exchange rate for the CDN dollar versus other international currencies. It’s very possible the network are more or less competitive relative to each other in different currency markets.

That said, it’s clear to us that MasterCard is better for Canadians the majority of time purchasing goods in USD, hence our recommendation of the Rogers MasterCard.

Nice catch though!

GreedyRates Staff

François says:

thanks, i was just curious since the title was about Foreign, but the conclusion was that it was only better for US$, so i thought you found something else in your study.
maybe i’m minority but most of my travels are not in country that use US$, and those that do credit card use is generally highly punitive (like 4-5% surcharge), so this is why i was curious.

Gil says:

Thanks for the info on the Rogers Mastercard, saw the info on your site and applied and received the card a month ago. Wanted this card for travel to the US, Already received the 35.00 bonus and have racked up 110.00 in cash back so far. We don’t normally use Credit Cards but the conversion at the bank for Cash is obscene to say the least. Seems like the best option plus where I use telephone banking I can stay on top of payments usually two days from my bank to the card. (Dont have to worry about exceeding the limit and any over limit charges.) Thanks agin

Norah says:

Hi. When travelling in Europe where master card is accepted, is it still better to use the Rogers master card, instead of cash?

GreedyRates says:

Hi Norah,

Great question. If the alternative is for you to exchange your Canadian dollars for Euros at a retail bank (or worse at an airport, hotel or foreign currency exchange booth), then you will get a better currency conversion rate with your Rogers MasterCard, and it will be the preferred method.

You will still be charged fairly close to the spot (interbank) rate when using the Rogers MasterCard in Europe, with no additional foreign transaction fees from Rogers. When converting your Canadian dollars to Euros at the bank you will likely get charged a fee closer to 2.5% to 3.5% on top of the spot rate (they don’t have to reveal their fees, it’s included in their exchange rate.)

GreedyRates Staff

Bill says:

Couple of important facts that have been omitted in the comparison, specifically between the Rogers MasterCard and the Amazon Visa.

1. The Rogers cash-back can only be applied to purchases in the Rogers store or towards a Rogers bill. If you are not a Rogers subscriber, not of much use.

2. The Rogers card has a $29 annual fee (waived for the first year, and if you have your Rogers bill set up for pre-authorized payment). The Amazon Visa has no annual fee.

The Rogers card could be good as long as you are a Rogers customer, otherwise the Amazon Visa is clearly superior. This is not the conclusion reached by the article.

GreedyRates says:

Hi Bill,

Your comment raises a common misconception with respect to the Rogers MasterCard:

1. The Rogers cash back can be applied as a statement credit against any purchases, not just Rogers purchases. It’s in the disclosure statement as follows: “Or, contact Rogers Bank once per year to receive an annual statement credit for value of rewards earned during that period.”

We are not sure why Rogers does not highlight this point, although we imagine they want to encourage people to redeem for Rogers goods and services. That said, we have verified with Rogers directly that you can indeed redeem your cash back as a statement credit – not just for Rogers goods and services.

2. You are correct with respect to the annual fee. Although our feeling is for non-Rogers customers, the first year annual fee waiver, and $35 welcome bonus, make it free for effectively 2 years (the annual fee is only $29) – long enough to make it worthwhile for most. Obviously for Rogers customers there is no annual fee if they put their bill on pre-authorized payment.

Hope that helps,

GreedyRates Staff

Bobbob says:

For non-USA travel, I see how the Rogers card can be beneficial, however for USA travel, why not just get a USD denominated credit card?

GreedyRates says:

Hi Bob,

The reason why the Rogers card is better than using a USD card for USA travel, is because it offers a better exchange rate. When using the USD card, you still have to exchange your Canadian dollars to US dollars in the bank, and then pay your USD credit card statement in US dollars. The exchange rate the bank will charge in branch will be far higher than the exchange rate on Rogers’ no foreign transaction fee card.

GreedyRates Staff